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FED ER A L RESERVE BANK O F NEW YORK I”Circular No. 7074 ~| [December 29, 1972J PROPOSED AMENDMENTS TO REGULATION Z To A ll State M ember Banks, and Others Concerned, in the Second Federal Reserve District: The following statement was issued December 19 by the Board of Governors o f the Federal Reserve System: The Board of Governors of the Federal Reserve System today proposed to amend its Truth in Lending Regulation Z so as to encourage the advertising of specific terms for open-end credit. Comment on the proposal should be received by the Board by January 31, 1973. Regulation Z now generally provides that if a specific credit term is advertised, all other credit terms must also be shown. Because of the amount of information now required, creditors have for the most part stopped advertising open-end credit plans — such as revolving charge accounts and bank credit cards — other than in a general way. The proposed amendment would reduce the amount of information a creditor must furnish, once a specific term is used, to the minimum requirements of the Truth in Lending Act, thus encouraging creditors to advertise specific provisions of their credit plans and giving consumers a more convenient opportunity to compare credit terms. Once a specific term is used, creditors would still be required to disclose the annual percentage rate, any free-ride period, the method of determining finance charges and balances on which finance charges are imposed. The period of repayment (for example, “up to 24 months to pay”) would be added as a term requiring full description of the plan in open-end credit advertising (it is presently a “triggering” term in advertising of closed-end credit). Advertising of “no down payment” would be eliminated as a specific term which triggers the full disclosure in open-end credit advertising since the term is implied in almost any statement made about such credit plans. The proposal, a copy of which is attached, would also make several technical and clarifying changes in the Regulation. Printed on the following pages is the text of the proposed amendments. Comments thereon should be submitted by January 31, 1973 and may be sent to our Regulations and Bank Analysis Department. ALFRED HAYES, P resid en t. (Reg. Z) TRUTH IN LENDING Advertising 1. Pursuant to the authority contained in the Truth in Lending Act (15 U.S.C. § 1601 et seq.), the Board of Governors proposes to amend Part 226 (Regulation Z) in the manner and for the reasons set forth below: Amend §§226.6(a), 226.10(c) and 226.10(d) to read as follows: § 226.6— GENERAL DISCLOSURE REQUIREMENTS (a) Disclosures; general rule. The disclosures re quired to be given by this Part shall be made clearly, conspicuously, in meaningful sequence, in accordance with the further requirements of this section, and at the time and in the terminology prescribed in applicable sections. Except with respect to the requirements of § 226.10, where the terms “finance charge” and “annual percentage rate” are required to be used, they shall be printed more conspicuously than other termin ology required by this Part and all numerical amounts and percentages shall be stated in figures and shall be printed in not less than the equivalent of 10 point type, .075 inch computer type, or elite size typewritten numerals, or shall be legibly handwritten. § 226.10 — ADVERTISING CREDIT TERMS * * * * (c) Advertising of open end credit. No advertisement to aid, promote, or assist directly or indirectly the extension of open end credit may set forth any of the terms described in paragraph (a) ol § 226.7, the Comparative Index of Credit Cost, or that a specified downpayment or periodic payment is required (either in dollars or as a percentage), the period of repayment or any of the following items, unless it also clearly and conspicuously sets forth all the following items in terminology prescribed under paragraph (b) of § 226.7: (1) An explanation of the time period, if any, within which any credit extended may be paid without incurring a finance charge. (2) The method of determining the balance upon which a finance charge may be imposed. (3) The method of determining the amount of the finance charge, including the determination of any minimum, fixed, check service, transaction, activity, or similar charge, which may be imposed as a finance charge. (4) Where one or more periodic rates may be used to compute the finance charge, the corresponding annual percentage rate determined by multiplying the periodic rate by the number of periods in a year. (d) Advertising of credit other than open end. No advertisement to aid, promote, or assist directly or indirectly any credit sale including the sale of residential real estate, loan, or other extension of credit, other than open end credit, subject to the provisions of this Part, shall state (1) The rate of the finance charge except as an “annual percentage rate,” using that term. No other rate of finance charge may be stated, except that: (1) where the total finance charge includes, as a component, interest computed at a simple annual rate, the simple annual rate may be stated in conjunction with, but not more conspicuously than, the annual percentage rate, or (ii) where the finance charge is computed merely by the application of a periodic rate to an unpaid balance, the periodic rate may be stated in conjunction with, but not more conspicuously than, the annual percentage rate. (2) That no downpayment is . required, or the amount of the downpayment or of any instalment payment required (either in dollars or as a percentage), the dollar amount of any finance charge, the number of instalments or the period of repayment, or that there is no charge for credit, unless it also clearly and conspicuously sets forth all of the following items in terminology prescribed under § 226.8: (i) the cash price or the amount of the loan, as applicable. (ii) in a credit sale, the amount of the downpayment required or that no downpayment is required, as applicable. (iii) the number, amount, and due dates or period of payments scheduled to repay the indebtedness if the credit is extended. (iv) the amount of the finance charge expressed as an annual percentage rate. The exemptions from disclosure of an annual percentage rate permitted in paragraph (b)(2) of § 226.8 shall not apply to this subdivision. (v) except in the case of the sale of a dwelling or a loan secured by a first lien on a dwelling to purchase that dwelling, the deferred payment price in a credit sale, or the total of payments in a loan or other extension of credit which is not a credit sale, as applicable. 2. The proposed amendments are designed to stimulate the competitive advertising of specific open end credit terms. They would also harmonize the separate requirements for open and closed end credit, where appropriate. In addition, numerous technical changes are proposed. 3. Section 226.6(a) has been clarified to provide that the requirement that the “annual percentage rate” and “finance charge” be shown more conspicuously than other terminology does not apply to advertising since such a requirement may be either impractical (e.g., in radio advertisements) or inequitable (where a creditor wishes to emphasize a favorable term for competitive purposes). However, an addition has been made to § 226.10(d) specifying that all required disclosures must be made “clearly and conspicuously.” This requirem ent (which is already contained in § 226.10(c) with respect to open end credit) would prevent the advertiser from burying the required disclosures with insufficient emphasis in the text of the advertisement. 4. The amendments would simplify § 226.10(c) by deleting the present requirements of showing a number of items in open end credit advertisements once a specific credit term is advertised. The deleted terms are the periodic rates, the range of balances to which each is applicable, the conditions under which other charges may be imposed, the method by which the other charges will be determined, and the minimum periodic payment required. The simplification is intended to encourage the advertising of specific open end credit terms. Such advertisements would still have to include the annual percentage rates, any free ride period, and the method of determining finance charges and the balances on which they are imposed. “No downpayment” has been removed as a specific term which triggers full disclosure since the term is implied in almost any statement about an open-end credit plan,e.g., “charge it with your credit card.” 5. The “period of repayment” has been added to § 226.10(c) as one of the specific terms requiring full disclosure. This harmonizes the requirements of open end credit with those presently applicable to closed end credit. 6. Section 226.10(d)(1) would clarify the fact that any expression of the finance charge on an annual basis in closed end credit must solely be as an “annual percentage rate” and not in conjunction, for example, with the add-on rate. However, the simple interest component of the finance charge could be shown along with the annual percentage rate. For example, the interest rate on a home mortgage could also be advertised where points may result in a higher annual percentage rate. Likewise, where finance charges are computed based upon the application of a periodic rate, that rate may be shown in conjunction with the annual percentage rate — e.g., a monthly periodic rate. These additional rates could not, however, be shown more conspicuously than the APR. 7. Sections 226.10(c) and 226.10(d)(2) would be clarified to provide that advertisement of the amount of the downpayment or other payment, either in dollars or percentages, would trigger the full disclosure require ments (whether or not the cash price was also given). The requirement for closed end credit that the amount of the downpayment must be given once full disclosure is otherwise triggered has been clarified to refer only to credit sales. (§ 226.10(d)(2Xii))- The provision has also been modified to specify that the “deferred payment price” disclosure is required in a credit sale, while the “total of payments” is required in a loan or other non-sale transaction. (§ 226.1(XdX2)(v)). This notice is published pursuant to section 553(b) of Title 5, United States Code, and § 262.2(a) of the rules of procedure of the Board of Governors of the Federal Reserve System (12 CFR 262.2(a)). To aid in the consideration of these matters by the Board, interested persons are invited to submit relevant data, views, or arguments. Any such material should be submitted in writing to the Secretary, the Board of Governors of the Federal Reserve System, Washington, D.C. 20551, or to any Federal Reserve Bank for transmittal to the Board, to be received at the Board not later than January 31, 1973. Such material will be made available for inspection and copying upon request, except as provided in § 261.6(a) of the Board’s Rules Regarding Availability of Information. By order of the Board of Governors, December 18, 1972.
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